Zano received over £2.3 million ($3.2 million) in funding from
7,000 backers, almost none of whom ever received a working
prototype of the drone, which promised to take photos and follow
the user around.

The Kickstarter campaign was added to a pot of money that already
had about £200,000 ($282,000) in it, according to Harris. Much of
this additional funding came from a local business owner who is
thought to have lost about £250,000 ($353,000) on the project.

In his report, Harris lays out exactly what happened and how it
happened, suggesting several steps crowdfunding sites can take to
remedy the situation when campaigns fail.

Here are the takeaways:

The Kickstarter campaign was so wildly successful (the
company initially asked for just £200,000) that the founders were
overwhelmed with orders.

This led to mistakes, such as going straight into mass
production without ordering a small sample of drones.

Missing a series of deadlines set on the Kickstarter page led
the company to become increasingly panicked.

Employees, however, were not told exactly how bad things
were. Two senior people who spoke with Harris say they didn't
know it was bad until the last few weeks, right before CEO Ivan
Reedman quit.

The booth at CES, which won the drone a seal of approval from
Engadget, was a house of cards, with multiple lies being made up
about why Zano did not fly.

Some of the money from the campaign is believed to have been
spent on new high-end Macs, a new BMW for a son of one of the
non-Kickstarter investors, and other superfluous items.

The demo video, which was featured heavily on the Kickstarter
page, was edited to make Zano look functional. The local
advertising authorities are investigating the company to see
whether it intentionally misled backers.

PayPal, through which campaign funds were processed, refused
to pass on the money until orders were fulfilled (a standard
practice to prevent fraud). This meant the money from the
campaign was released and then immediately went back into refunds
for unhappy buyers.

Astoundingly, even if the company had not done anything
wrong, it still would have been £1 million ($1.4 million) in debt
after it fulfilled all orders.

Harris went on to speak to the
CEO of Kickstarter, Yancey Strickler, who argued that the company
could still take a 5% commission fee from each successful
campaign — about £115,000 ($162,000) for Zano — but should
probably look at building out support for any founder whose
campaign is so wildly successful.